Why are Gold prices different in different cities in India?

Gold, being a precious metal, can provide multiple solutions in a financial crunch. It continues to maintain its relevance in the era of technology. Households, even business owners, can sell your gold for cash or take a loan against your gold. Gold also attracts investors as it is a safe haven during a volatile market. Historically, it has shown lower volatility than the stock market. The everyday-changing gold rates dictate their investing or selling decisions.

In India, gold is subject to a 10% import duty and a 3% tax. Gold prices are different in different cities as each city has its own taxes and duties.

Why Gold Rates Differ in Different Cities in India

At the state level, gold rates are influenced in India by local taxes, transportation costs, the purchase price of gold, gold quantity purchased or sold in a particular city, and local jewellery associations.

• Goods and Services Tax (GST) to buy or sell gold jewellery, coins and bars is 3%. Jewellers need to pay GST, which is ultimately passed on to the end consumer. Making charges on gold also attracts GST, which currently stands at 5%. It also causes variation in gold prices.
• Demand & supply is the primary factor that largely affects the gold rates. Rising inflation and geopolitical risks will likely maintain high demand for gold as it is a hedging tool also. The US Federal Reserve led policy rate hikes since May 2022 to bring down inflation. It will increase the gold rate and decrease its demand.
• The Indian Bullion Jewellers Association (IBJA), which includes the most prominent gold dealers in India, plays a key role in specifying gold rates daily in India.
• Hauling costs refer to the expenses associated with transporting gold from one location to another. These costs can vary depending on several factors, including the distance between the two locations, the mode of transportation, the weight and volume of the gold being transported, and local regulations and taxes.
• The cost of hauling gold can also vary depending on the price of gold in different cities. For example, if the price of gold is higher in one city compared to another, the hauling costs to transport the gold to the city with the higher price may be justified. On the other hand, if the price of gold is lower in one city, the hauling costs to transport the gold to that city may not be economically feasible.
• Volume play in the gold market refers to the use of trading volume data to make investment decisions. In the context of gold prices in different cities, volume play would involve monitoring the trading volumes of gold in each city to determine which city is experiencing higher demand for the metal.
• The purchase price of gold can vary depending on several factors, including the type of gold product being purchased, the quality of the gold, and the location of the buyer. Some common gold products include bullion bars, coins, jewelry, and exchange-traded funds (ETFs).
• In some cases, local associations may be able to negotiate bulk discounts on gold purchases, which can help to reduce the price of gold in their area. They may also have access to a more stable supply of gold, which can reduce price volatility.

You can look at the most recent, highest or lowest 1 gram gold rate in India for 24 karat and 22 karat gold fineness and compare to decide on buying or selling.

Let us elaborate on the key factors that affect the gold rates in India.

Factors Affecting Gold Rates in India

1. Central Bank Gold Reserves

When the government buys more gold, gold rates tend to rise. On the contrary, exports may result in declined gold rates in the country. For central banks, gold is a vital reserve as it gives the ability to support the nation’s currency. For instance, banknotes are issued by the Reserve Bank of India (RBI) with the back of gold. Rich gold reserves in a country help strengthen its currency. But more imports can devalue the currency over time. Concerning this fact, the Indian government has recently increased the import duty on gold (from 10.75% to 15%). It will make the gold purchases costly and bring down gold imports to preserve foreign reserves.

2. Transportation Cost

Gold is a physical commodity, and the commodity business involves transportation costs that add to the gold rate, making the price difference. After importing, gold has to be disseminated to the various states following the demand trends. This cost differs with the mode of transportation as every city does not have a port. The security measures taken by the state government also add to the gold rate. When you look for the lowest gold price in India, it is significantly lower in southern cities than in the north and west.

3. Demand for Gold

Increased demand for gold increases its price. It can be defined in two ways.

• First is the household and industrial demand fuelled by the rise in demand for gold jewellery, bars and coins. If the demand declines, supply increases, decreasing the gold rate. In the context of industrial demand, many electronic and medical device manufacturers need gold to produce their goods. A decline in demand decreases the gold rate.
• Second is investment demand fuelled by exchange trade fund houses purchasing gold to cater to investors’ requirements. As per the Gold Demand Trends report, gold ETFs recorded their strongest quarterly inflows in Q1 2022 simply because it is considered a safe haven.

Thus, you must keep checking India’s highest and lowest gold prices to sell or buy your gold. Most households and investors prefer to invest in gold in India and utilise it in need of the hour. If you are looking for the best value for your gold to meet urgent financial requirements, you can sell gold at the Muthoot Gold Point. Our customers get 100% fair gold value based on a safe and scientifically tested way of selling gold and receive instant cash.

Check Gold Rate on the most popular cities in India